Canadian Parliament in Ottawa

As Parliament rises for the summer break, we take yet another look at the status of major tax promises and proposals still outstanding:

Outstanding from the 2018 federal budget

Proposal: Any non-resident trust that files a T3 tax return and virtually all express trusts resident in this country will have to turn over beneficial ownership information to the Canada Revenue Agency for taxation years ending on or after Dec. 31, 2021.

Status: In February, the Department of Finance released draft legislation that will be effective for trusts with taxation years that end on and after Dec. 31, 2022 — delaying the implementation by one year.

The draft legislation also extends the reporting rules to any “arrangement where a trust can reasonably be considered to act as agent for its beneficiaries with respect to all dealings in all of the trust’s property. These arrangements are generally known as ‘bare trusts.’” Tax practitioners have expressed concern that clients may have bare trusts without realizing it.

The draft legislation was out for consultation until April 5, and there have been no updates since.

Outstanding from the 2019 federal budget

Proposal: Change taxation affecting ETFs and mutual funds (e.g., allocation to redeemers).

Status: Passed into law June 29, 2021, as part of the Budget Implementation Act, 2021. Mutual fund changes are retroactive to March 19, 2019. For ETFs, changes don’t apply to tax years that begin before Dec. 16, 2021, but do apply to tax years beginning after that day. The act broadened that deferral to include mutual fund trust ETFs created after Budget Day, 2019.

Specific rules for ETFs were released in February’s draft legislation, and were out for comment until April 5. The legislation includes a revised allocation to redeemers formula that requires only that the ETF know its net asset values as of the end of the current and preceding tax year; the amount that was redeemed by unitholders; and the capital gain for the entire ETF.

Updates to the allocation to redeemers methodology may appear in draft legislation that industry observers expect to be released in July.

Outstanding 2019 election promises

Promise: Enact a luxury tax of 10% on new cars and aircraft costing more than $100,000 and on new boats costing more than $250,000. The tax would be calculated as the lesser of 20% of the value above the thresholds and 10% of the full value.

Status: This tax was included in the Budget Implementation Act, 2022 (tabled as Bill C-19), which received royal assent on June 23. The tax takes effect on Sept. 1.

Promise: Raise CPP (and QPP) survivor’s benefit by 25%.

Status: Finance Minister Chrystia Freeland was directed to implement this in her 2021 mandate letter. No update since our last check-in.

Promise: Increase Canada Child Benefit (CCB) by 15% for kids younger than one year old; make EI maternity and parental benefits tax-exempt.

Status: No progress.

Promise: Double the child disability benefit.

Status: No progress.

Outstanding from the 2020 speech from the throne

Promise: Enact a new Canadian disability benefit modelled on the guaranteed income supplement.

Status: On June 2, the Liberals introduced Bill C-22, the Canada Disability Benefit Act, to create a Canada Disability Benefit. The bill is currently at second reading in the House of Commons, which has risen for the summer.

Promise: Revamp the EI system.

Status: Qualtrough’s mandate letter asked her to “bring forward and begin implementing a plan to modernize the EI system for the 21st century” by summer 2022. Phase 1 of consultations on modernizing the EI system ran from Aug. 2021 to Feb. 2022. Phase 2 of consultations opened April 29 and will close July 29.

Promise: Permit free, automatic tax returns for simple situations.

Status: No progress.

Outstanding from the 2021 federal budget

Proposal: Impose an annual 1% tax on the value of non-resident, non-Canadian-owned residential real estate that is considered to be vacant or underused.

Status: Final details of this tax, which came into force Jan. 1, 2022, were released in the fall economic update. The legislation to implement the tax, Bill C-8, received royal assent on June 9.

Proposal: Expand disability tax credit eligibility in the areas of mental functions and life-sustaining therapy.

Status: The expanded eligibility criteria appeared in the draft legislation released on Feb. 4. The comment period for this portion of the legislation closed on March 7.

In June, the Federal Standing Committee on Finance passed a motion to amend the Budget Implementation Act (Bill C-19), removing the requirement that Canadians living with Type 1 diabetes meet the 14-hour criteria under life-sustaining therapy to qualify for the Disability Tax Credit. Bill C-19 has received royal assent.

Proposal: Examine raising charities’ disbursement quota, which currently is 3.5%.

Status: In the 2022 federal budget, the Liberals proposed increasing the disbursement quota to 5% from 3.5% for the portion of property registered charities do not use in charitable activities or administration that exceeds $1 million. Legislation to enact this change has not yet been introduced.

Outstanding 2021 election promises

Promise: Raise the corporate income tax rate for banks and insurers to 18% from 15% on all earnings above $1 billion. These financial services institutions also would have to contribute to a Canada Recovery Dividend (CRD).

Status: Budget 2022 proposed that a bank and insurer surtax be set at 1.5% for taxable income over $100 million for taxation years that end after April 7, meaning those companies would pay 16.5% on income above that threshold going forward.

Banks and insurers would also have to pay a one-time 15% tax on 2021 taxable income above $1 billion (CRD). The CRD liability would be imposed for the 2022 taxation year and would be payable in equal amounts over five years.

Neither proposal was included in Bill C-19.

Promise: Develop a minimum tax rule to ensure that top earners (those earning more than $216,511 in 2021) pay at least 15% per year.

Status: In Budget 2022, the government proposed reviewing the existing alternative minimum tax regime to ensure top earners pay at least 15% per year. Details on the new regime will appear in the fall fiscal and economic update, the government stated.

Promise: Double the Home Buyers’ Amount to $10,000 from $5,000.

Status: This was proposed in Budget 2022, but not included in Bill C-19.

Promise: Double the Home Accessibility Tax Credit to $20,000.

Status: Proposed in Budget 2022 and included in the 2022 budget implementation act.

Promise: Introduce a tax-free First Home Savings Account to enable Canadians younger than 40 to save up to $40,000 toward their first home, with no taxes on contributions or withdrawals.

Status: The Liberals introduced the FHSA in the 2022 federal budget. The account would have a lifetime contribution limit of $40,000 and an annual contribution limit of $8,000, with no age limit. Draft legislation is pending, but industry observers expect it to drop in July.

Promise: Introduce an “anti-flipping tax” on residential homes, requiring property to be held for at least 12 months.

Status: Budget 2022 proposed an anti-flipping rule to tax gains earned on residential real estate held for fewer than 12 months as business income, subject to certain exemptions. Draft legislation and a consultation are pending.

Promise: Introduce a Multigenerational Home Renovation Tax Credit for families adding a secondary unit to their home for a family member to live with them. Families would be able to claim a 15% tax credit up to $50,000 in eligible renovation and construction costs.

Status: Proposed in Budget 2022, but not included in Bill C-19.

Promise: Make the Canada Caregiver Credit refundable.

Status: Included in Freeland’s mandate letter, but not mentioned in Budget 2022.

Promise: Implement a Career Extension Tax Credit to allow working seniors older than 65 who earn at least $5,000 at their jobs to eliminate taxes payable on a portion of their income and receive a tax credit of up to $1,650.

Status: Included in Freeland’s mandate letter, but not mentioned in Budget 2022.

Promise: Increase the guaranteed income supplement by $500 for single seniors and by $750 for couples, beginning at age 65.

Status: Included in the mandate letter for Kamal Khera, the Minister of Seniors, but not included in Budget 2022.

Promise: Create an expert panel to study the idea of an Aging at Home Benefit.

Status: Included in Budget 2022, no announcement on expert panel.

Outstanding from the 2022 federal budget

Proposal: Increase the level of taxable capital at which a business can still access the small business tax rate (a federal rate of 9% on the first $500,000 of taxable income, versus the general federal corporate rate of 15%).

Status: Not included in Bill C-19.

Proposal: Require financial institutions to report the total fair market value of each RRSP and RRIF annually to the Canada Revenue Agency.

Status: Not included in Bill C-19.